My Money caught up with Jan Zalar to ask him our 10 key questions about his life as a freelancer.
- 15 Jul 2019
No one sets out to make a mistake in their work, but what happens if something just goes wrong? Or even if a client simply claims something has gone wrong and blames you? Professional indemnity insurance can be important for defending you and your business from the cost of a negligence claim.
Consider for a moment… an IT consultant works with a client to develop and implement a new IT system. Unfortunately, the system goes down for a long time and the client loses money. Unhappy, the client blames their consultant for the IT downtime and makes a legal claim against them to recover lost revenue. Fighting the claim and paying compensation could cost the consultant thousands of pounds.
It’s not just IT that is at risk either: professional negligence claims can affect many different occupations. What would happen, for example, if an accountant made a mistake fi ling a client’s tax return, which led to a fi ne from HMRC? Or what if an architect’s drawings turn out to be inaccurate after building had started? Or maybe a marketing company makes a mistake on a client’s brochure that leads to costly reprints?
Any of these scenarios could not only financially damage the supplier of the service – they could also cause reputational damage.
In recent years, there has been a big jump in the number of negligence claims against professionals, with clients alleging poor advice or service has led to them losing money. In many cases, these claims may well be genuine, and a real mistake has been made. However, a more challenging business environment has also led to some businesses alleging there has been poor service simply to try and escape from paying a contractor or consultant. That means even if there has not been any negligence, a professional could find themselves having to fight a costly claim as well as losing out on fees for a project. In situations like this, professional indemnity insurance (or PI) is invaluable. PI insurance covers freelance and self-employed professionals against allegations of negligence by their clients.
If you provide advice or work in an area where your actions could lead to a client losing money (anything from IT or telecommunications to engineering or finance), PI could be extremely helpful. In fact, it is as important as other areas of cover such as public and employers’ liability insurance.
In some instances, it might be that your professional body – such as the Solicitors Regulatory Authority, or the Royal Institute of Chartered Surveyors – stipulates that you must have a level of PI cover. But even if they don’t, many businesses’ contractual demands insist suppliers must have appropriate PI insurance to protect themselves if something goes wrong. But what exactly does PI insurance cover?
In simple terms, a PI policy will cover your legal costs and expenses if a client decides to make a claim against you over problems with the advice or services you have provided.
• Breach of duty – where you’re accused of breaching your duty of care
• Breach of confidence – where you’ve inadvertently given out confidential client information to a third party
• Defamation – cover for slanderous or libellous claims
It’s important to note that you can still be held liable for work you have carried out in the past even after you have stopped providing services, so it could be worthwhile to maintain PI runoff cover for a period of time.
One major benefit of PI is the reassurance that, if something does go wrong, you will have the financial support to resolve the issue and prevent potentially ruinous damages to your business. In some instances, a good PI policy as well as professional advice and support from your insurer can not only smooth out a troubled relationship with a client, but also help preserve your reputation.
Fighting a claim made against you for negligence could be expensive and it could also be a big drain on your time – something which, for a small business, can be just as damaging. Having PI insurance in place will save you the time you might spend defending a claim, so you can get on with the day-to-day work your business demands. PI insurance for freelance professionals is a cost-effective safety net for your business. For further information on the issues covered by this article, please contact Aon on 0333 363 8461.
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